9911796707
TMI Blog2022 (4) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... and are not being carried out in accordance with its objects. 1.1 The ld. Pr.CIT has further erred in cancelling the registration u/s 12AA(4) of the IT Act, 1961 by holding that activities are being carried out in such a manner that the provisions of Section 11 & 12 do not apply to exclude the income of the assessee due to operation of Section 13(1). 2. The appellant craves to alter, amend and modify any ground of appeal. 3. Necessary cost be awarded to the assessee." 4. The brief facts of the case are that the assessee society was constituted on 20.09.2002 with the objectives of providing education & medical facilities without any profit motive. It is registered under Societies Registration Act XXI of 1860and also registered u/s 12AA of the Act vide order no. 1094 dated 27.10.2008.In pursuance to these objects, the assessee is presently running a school in the name of Disha Delphi Public School (DDPS) at Kota. Disha Delphi Public School run by the assessee society is affiliated with CBSE. A search was conducted on the Allen Group, Kota on 02.02.2017. During the course of search documents relating to payment made by Sh. Govind Maheswari & others to Sh. R.K. Verma for acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by the provisions of section 12AA(4). Accordingly, the Ld. PCIT issued show cause notice dated 19.02.2019 (1A-3A) seeking explanation from the assessee as to why the registration granted u/s 12A should not be cancelled u/s 12AA(3) & 12AA(4). The assessee vide reply dated 11.03.2019 explained that since the assessee society was running into losses, it approached the Maheshwari brothers to become members of the assessee and help it to run the school efficiently. Thus, loan of Rs. 46 crores was given by the Maheshwari brothers at interest rate of 9% p.a. which was used to repay loan taken by the assessee from PNB & others at higher rate of interest. Further, since Shri R.K. Verma was in financial hardship, Maheshwari brothers in order to help him invested Rs. 8 crores in M/s R.C. Jain Invest & Finance Pvt. Ltd. and also provided him fund of Rs. 19 crores. Thus, the amount so provided by Maheshwari brothers to Sh. R.K Jain is no way connected with the affairs of assessee society. The Ld. PCIT, however, did not accept the contention of assessee by giving the following reasons:- i) Shri R.K. Verma has admitted on oath that the payment of Rs. 46 crores in cheque and Rs. 19 crores in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in Para 18 & 19 of the order is on the allegation that (i) Maheshwari brothers paid Rs. 46 crores by cheques to the society, (ii) invested Rs. 8 crores in shares of R.C. Jain Investment & Finance Pvt. Ltd. and (iii) paid Rs. 19 crore in cash to Sh. R.K. Verma in lieu of the deal between Maheshwari brothers and Sh. R.K. Verma for transfer of administrative control and management rights of DDPS from Sh. R.K. Verma to Maheshwari brother and Allen group with the intention that school becomes subservient to the coaching institute of Allen group. In this connection it may be noted that sections 12AA(3) and 12AA(4) apply only when any of the following condition mentioned therein is satisfied:- (i) The activities of the trust or institution are not genuine (ii) The activities are not carried out in accordance with its object (iii) There is operation of section 13(1) meaning thereby that income does not ensures for the benefit of general public and is for benefit of particular religious community or caste or the income or property is applied for benefit of specified persons or funds are invested in violation of section 11(5). 2. In the present case, none of the conditions ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R.C. Jain Invest & Finance Pvt. Ltd., it cannot be presumed that Maheshwari brothers have utilised DDPS for theii profitable purpose. These observations are only on conjectures or surmises and are not covered by any of the clauses of section 13(1) in as much as no part of the income or property of the society is used or applied directly or indirectly for the benefit of Maheshwari brothers. (iv) So far as clause (4) of Memorandum of Association of the society is concerned (PB 3), it only provides that all income/ properties shall be solely utilised for its object, no profit shall be paid in any manner whatsoever to the members of the society and no members shall have any personal claim on any properties of the societies or make any profit by virtue of his membership. On providing funds by Maheshwari brothers to Shri R.K. Verma or by making investment in shares of R.C. Jain Invest & Finance Pvt. Ltd., no income/ property of the society has been utilised in any manner whatsoever by the members of the society nor any members have made any profit by virtue of his membership. Further, as per section 12AA(3) registration can be withdrawn only when the activities of the trust are not ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed funds to Shri R.K. Verma to help him to tide over his financial difficulties would not mean that society has sold/ transferred the school run by it to Maheshwari brothers/ Allen group. 6. It is also alleged that by becoming the member of assessee society, Maheshwari Brothers and Allen group are making huge profit from their coaching business as because of this there is increase in enrolment of coaching classes. No material is brought on record by the Ld. PCIT in support of this allegation. M/s Allen Career Institute is otherwise providing coaching to more than 1.25 lakhs of students and has filed the return declaring income ranging between Rs. 63.35 cr. to Rs. 110.98 cr. in AY 2014-15 to 2017-18 and therefore, by no stretch of imagination it can be presumed that by becoming members of society, Maheshwari brothers received any benefit from the assessee society. 7. It is submitted that due to active participation of Mahcshwari brothers in the society, the CBSE affiliated the school for providing the education upto Sr. Secondary level and the total strength of the students in the school which was around 600 at that point of time increased to 2500 students at present and the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, it cannot be said that the activities of the Trust are not being carried out in accordance with the objects of the Trust. When the aforesaid two conditions are fully satisfied, on the ground that the trustees are misappropriating the funds of the Trust the registration of the Trust cannot be cancelled. If the trustees are misappropriating the funds, if they are maintaining false accounts, it is open to the authorities to deny the benefit under section 11 of the Income Tax Act, but that is not a ground for cancelation of registration itself That is precisely what the Tribunal has held. Therefore, the substantial question of law is answered in favour of the assessee and against the revenue. There is no merit in this appeal." In view of above, it is incorrect on part of Ld. PCIT to allege that activities of assessee are not genuine or are not carried out in accordance with its object or that any benefit is provided to the specified person and therefore, he be directed to withdraw the cancellation of registration granted to the assessee society." 7. On the other hand, the ld. CIT-DR has vehemently supported the order passed by the ld. Pr.CIT and submitted that the ld. Pr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety to repay its existing bank loan. Also in terms of present deal, Rs. 8 crore (i.e. Rs. 2 Crores by each brother) were paid by cheque for acquiring shareholding in R. C. Jain Invest & Finance Pvt Ltd. 6. Evidence was gathered during search that each brother had extended loan of Rs. 9.37 crores to the assessee-society in three tranches viz. Rs. 5 crores was extended on 21.02.2015, Rs. 4.37 crores was extended on 03.03.2015. Balance amount was extended by the brothers to the assessee-society in F.Y. 2015-16. Therefore, the irregularities in functioning of assessee-society began in F.Y. 2014-15 inasmuch as the assessee-society accepted huge loan from Maheshwari brothers as quid-pro-quo for handing over the management and control of the Disha Delphi School to the Maheshwari Brothers. The relevant ledger account of the assessee-society is reproduced as under: 7. Over and above these payments, a sum of Rs. 19 Crores was also paid by the Allen Group in cash to Shri R.K. Venna, who was an active member in the society and was running the day to day activities of the school. The above said sum of Rs. 19.00 Crores was paid out of un-accounted cash of each brother in equal proportion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng control over Disha Delphi School was essential for them to expand their coaching business and thereby derive huge profits from the same. 10. By making huge payment, both in cheque and cash, to acquire membership in assessee-society and control over Disha Delphi School, the Maheshwari brothers and Allen Group are making huge profits from their coaching business. Therefore, it is clear that the Maheshwari brothers are deriving profit by virtue of their membership in the assessee-society which is in contravention of clause 4 of the Memorandum of Association of the assessee-society reproduced above. 11. In light of the above discussion, the activities of the assessee-society are not being carried out in accordance with the objects of the assessee-society inasmuch as that by virtue of the fact that the Disha Delphi School has become subservient to the coaching programme of Allen Group, the Maheshwari brothers are making huge profits by virtue of them being members of the assessee-society. Accordingly, the activities of the assessee-society fall under the purview of Section 12AA(3) of the Income-tax Act. For ready reference, the provisions of this sub-section are reproduced as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (a) ..... (b) ...... (bb) [***] (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) : Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any 'person referred to in sub-section (3), if such use or application is by way of compliance with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... member of the assessee-society and help the assessee-society to run the school efficiently. Thereafter, the Maheshwari brothers had extended loan to assessee-society at 9% interest rate and this loan was used to pay-back loan taken from Punjab National Bank at higher interest rate at 16%. 17. Insofar as the payments by cheque and cash to Shri RK Verma and investment in shares of R. C. Jain Invest & Finance Pvt Ltd are concerned, the A/R of the assessee-society has attempted to distance the assessee-society from these transactions by claiming that they are independent transactions between the Maheshwari brothers and Shri RK Verma, and the assessee-society is in no way connected to these payments. 18. The submission made by the A/R of the assessee-society are not acceptable as they are in contrary to the facts at hand. Firstly, the Maheshwari brothers as well as Shri RK Verma have admitted on oath that the payment of Rs. 46 crore in cheque and Rs. 19 crore in cash by Maheshwari brothers to Shi R.K. Verma as well as share investment of Rs. 8 crores by Maheshwari brothers in R. C. Jain Invest & Finance Pvt Ltd were all made in lieu of the deal between the Maheshwari brothers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Shri Lalit Maheshwari, who is the CFO & Key person in Allen Group, was recorded on oath wherein he clearly admitted that the documents seized from his possession during the course of search were written by him and they were related to a transaction/deal entered into by Shri Govind Maheshwari, Shri Rajesh Maheshwari, Shri Naveen Maheshwari & Shri Brajesh Maheshwari of the Allen Group and Shri RK. Verma (key person of Resonance Coaching Classes, Kota) for transfer of administrative control and management of Disha Delphi Public School for which one CA Shri Ajay Jain acted as mediator. We also observed that the evidences recovered during search and statements of Shri Lalit Maheshwari were confronted to Shri Govind Maheshwari, partner of M/s Allen Career Institute. Shri Govind Maheshwari admitted that the incriminating document seized from premises of Shri Lalit Maheshwari pertains to the deal of Disha Delphi Education Society through Shri Ajay Jain. He stated that Rs. 46 Crore (i.e. Rs. 11.50 crores by each brother) were paid by cheque for obtaining membership in assessee-society and these funds were used by the assessee-society to repay its existing bank loan. Also in terms of prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e students who attend coaching classes at M/s Allen Career Institute are enrolled with Disha Delphi School for the purposes of completing their secondary / senior secondary education. Due to the fact that the control of the school vests solely with the Allen Group, students who are enrolled for coaching with M/s Allen Career Institute find it convenient to manage the requirements of attendance and other school requirements if they are enrolled with Disha Delphi School. In fact, M/s Allen Career Institute did not have administrative control over any other school before Disha Delphi School. With a view to increase enrolment in their coaching classes, the Allen Group found it to be a good business deal to pay exorbitant sums of money to acquire control over Disha Delphi School. The only reason why Allen Group has paid huge amount of money to RK Verma including cash from unaccounted sources was because acquiring control over Disha Delphi School was essential for them to expand their coaching business and thereby derive huge profits from the same. By making huge payment, both in cheque and cash, to acquire membership in assessee-society and control over Disha Delphi School, the Maheshwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of this sub-section are reproduced as under: 13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (a) ..... (b) ...... (bb) [***] (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) : Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any 'person referred to in sub-section (3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al scenario. 13. The ld. AR has also claimed that the Maheshwari brothers are just mere members of the assessee-society and the office bearers of the society have not changed even after the deal between Maheshwari brothers and RK Verma. With this argument, the ld. A/R is attempting to hide the true picture behind nomenclatures and designations. Irrespective of what designation is bestowed upon the Maheshwari brothers, it is undisputed fact that as on date, the administrative control and management of Disha Delphi School vests solely with the Maheshwari brothers and the Allen Group. This fact was not disputed anywhere by the A/R in his submission. Incriminating evidences have been gathered during search action in the cases of Allen Group, Resonance Group as well as surveys in the case of the assessee that the Maheshwari brothers exercise full control over Disha Delphi School and that they have made this school subservient to their coaching programme. It is solely for this purpose that huge money was spent by Maheshwari brothers to obtain management rights over Disha Delphi School. The facts and submissions as well as case laws relied upon by the ld. AR are not applicable as per fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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